The Commodity Futures Trading Commission (CFTC) and the U.S. Department of Justice filed separate lawsuits against Illinois, Connecticut and Arizona and their gaming regulators, asserting federal authority to regulate prediction markets.
In 2025, those states and their gaming regulators issued cease-and-desist letters to platforms such as Kalshi and Polymarket, asserting that the event contracts offered by the platforms violated state gambling laws and licensing requirements. The CFTC’s complaint against Illinois names Governor J.B. Pritzker, Attorney General Kwame Raoul and the Illinois Gaming Board, arguing the board exceeded its authority by labeling event contracts as “wagers” or “sports betting” rather than recognizing them as asset swaps.
Across each lawsuit, the CFTC contends it has “exclusive jurisdiction” over Designated Contract Markets (DCMs) under the Commodity Exchange Act (CEA), and that state efforts to shut down federally regulated DCMs intrude on the federal scheme Congress established to oversee national swaps markets. The Illinois filing warns that, unless enjoined, state defendants are likely to continue actions that subvert federal law and the CFTC’s exclusive regulatory authority over event contract swaps.
CFTC Chairman Mike Selig criticized the states’ actions, saying their attempts to overstep the agency have created market uncertainty and could destabilize participants and registrants.
Legal pressure on prediction markets has been mounting: state regulators in Arizona, Nevada, Illinois, Maryland, New Jersey, Montana, Ohio, Connecticut, Tennessee, New York and Massachusetts have pursued actions against prediction platforms. At the federal level, lawmakers are also advancing proposals to ban sports-related event contracts and to bar political insiders from participating in prediction markets tied to war.
The litigation and legislative moves come amid increased scrutiny by U.S. regulators and lawmakers, who have raised concerns about insider trading and other risks in prediction markets.